The Great Bear Market of 2008 (and now 2009) has turned some once great stocks into complete train-wrecks, pulling their prices down under $5.00…. penny stocks, technically. In some cases, share prices have even fallen under a true ‘penny stock’ threshold by tumbling under $1.00. Yet, a handful of these companies continue to present future value. Those are the stocks we’re interested in today, while they’re priced at stunningly-low levels.
In no particular order, among the thousands of stocks under $5.00 (which is our technical definition of a penny stock) right now, we like Manitowoc Co. Inc. (NYSE:MTW), Dynegy Inc. (NYSE:DYN), Buckeye Technologies Inc. (NYSE:BKI), USEC Inc. (USU), and Continucare Corp. (NYSE:CNU) the best of all.
Those five were selected based on several factors… fundamental outlook, technical opportunity, opinion, and a dose of common sense, just to name a few. A little more detail of what we liked is added below.
Are these penny stocks a little off the beaten path? Sure, we’d be the first to say those tickers aren’t exactly making headlines every day. That’s why we like them though - the best opportunities lie in stocks very few people have really gotten to know yet.
As for what you do with them… well, that’s up to you. Feel free to add any or all of them to your current portfolio, just as long as you also understand and can handle the risks involved.
Manitowoc Co. Inc. (MTW)
This heavy crane (mostly) manufacturer started to turn in some really nasty numbers in the third quarter of last year; the nail in the coffin was Q1’s $705 million write-down that led to a quarterly loss of $656 million. The market sequentially punished the stock the whole time bade news was being printed.
Manitowac’s future looks better than the past though. Had it not been for the non-recurring charge last quarter, the company would have actually been back in the black; the op line really hasn’t waffled much over the last four quarters.
Yes, this is a bit of an economic recovery play (not our only one, as you’ll see). The stock was priced for the absolute worst though, which doesn’t look like it’s going to pan out. The recent refocus of the company - via shedding some weaker business - is just the clean up the penny stock needed.
Dynegy Inc. (DYN)
It’s technically classified as a utility company, but Dynegy actually creates and sells energy on a wholesale basis. Nevertheless, the utility industry’ future and Dynegy’s future walk hand in hand.
Anyway, the per-share earnings have been hit and miss. And, the hits have been minimal, though the misses have been minimal as well). That may be why UBS recently downgraded Dynegy to a ’sell’ (from ‘neutral’).
So why are we interested? You buy a stock not for where it is, but where it’s going. And, we think Dynegy’s worst is over. See, DYN has suffered three downgrades since April. Since analysts are typically late to the party, our contrarian side tells us this is a penny stock the market has priced like it’s been written off completely …but shouldn’t have.
Buckeye Technologies Inc. (BKI)
Yes, technically it’s a penny stock thanks to Friday’s closing price of $4.95. Regardless of the price though, this wood and cotton company may be underestimated on a forward-looking basis.
The past twelve months isn’t much to look at from afar. If you look past the one-time write down of $138 million from the last calendar quarter of late year, however, you’d actually see continued operating profit throughout the brunt of the recession. Just think what the company could do in a decent economy.
USEC Inc. (USU)
The metal miners are something of a two-edged sword. If the economy recovers (and we think it will), then the demand for industrial metals is apt to increase. Thus, USEC’s revenue goes up. Simultaneously, a strengthening economy - not to mention lots of stimulus dollars in a low-interest rate environment - means commodity prices are poised to shoot upward. Thus, USEC’s net margins are likely to go up as well. In other words, this penny stock is a growth and in inflation play.
The company came up short last quarter, losing 2 cents rather than gaining 9 cents per share, like analysts expected. The market may have reacted (albeit preemptively) a little too harshly though.
Continucare Corp. (CNU)
You may not have heard much about this healthcare service company yet, but we think its recent addition to the Russell 3000 is the beginning of a string of notoriety for this penny stock.
Only a few other companies managed to remain profitable over their last four fiscal quarters; Continucare was one of them. Third quarter’s revenue was up 14%.
In simplest terms, it’s a well-run company in a reliable industry. The trailing-twelve-month P/E of 11.9 is solid, while the forward-looking one of 9.7 is compelling. And, the company’s historical performance makes that forward-looking P/E plenty plausible.
That’s it for today, but be sure to check back early and often - we almost always have a new, undiscovered penny stock idea to kick around. Also, be sure to sign up for our free e-newsletter if you haven’t already. It’s the best way to ensure you get our comments and penny stock picks in a timely manner.
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